lllllllllllillllllillllllllllll'' ERNST YOUNG in•v.icbc.com.cn/userfiles/Resources/ICBC/haiwai/Karachi/...2012/12/31 · 3.2 SBP vlde BSD Circular No 10, dated 26 August 2002 has

lllll llllllillllllillllllllllll''"" g1J ERNST & YOUNG Ernst & Younq ford Rhodes Sic!at ~yde: Chz,rteren Actour1 in•

AUDITORS' REPORT TO THE DIRECTORS

We have audited the annexed statement of financial position of Industrial and Commercial Bank of China - Pakistan Branches (the Bank) as at 31 December 2012 and the related profit and loss account, statement of comprehensive income, cash flow statement and statement of changes in equity, together with the notes forming part thereof (here-in-after referred to as the 'financial statements') for the year then ended and we state that we have obtained all the Information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit.

It is the responsibility of the Bank's management to establish and maintain a system of internal control, and prepare and present the financial statements in conf ormfty with approved accounting standards and the requirements of the Bank! ng Companies Ordinance, 1962 ( LVll or 1962), and the Companies Ordinance, 1984 (XLVll of 1984). Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the International Standards on Auditing as applicable In Pakistan. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of any material misstatement. An audit Includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also Includes assessing the accounting policies and significant estimates made by management, as well as, evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion and after due verification, we report that:

(a) in our opinion proper books of account have been kept by the Bank as required by the Companies Ordinance, 1984 CXL VII of 1984);

( b) in our opinion:

( i) the statement of financial position and profit and loss account together with the notes thereon have been drawn up in conformity with the Banking Companies Ordinance, 1962 (LVJI of 1962), and the Companies Ordinance, 1984 (XLVll of 1984), and are in agreement with the books of account and are further in accordance with accounting policies consistently applied except for the changes as stated in note 5.1 to the accompanying financial statements, with which we concur;

(ii) the expenditure incurred during the year was for the purpose of the Bank's business; and

(iii) the business conducted, investments made and the expenditure incurred during the period were in accordance with the objects of the Bank and the transactions of the Bank which have come to our notice have been within the powers of the Bank.

I lllllllllillllllillllliflllll"'"' .. i.11 ERNST & YOUNG -: 2 :-

Ernst & Younq F'ord R~odu Sldet !-'\•!t:r Chartered Actountan~ Ptooresslvt! Plaza, Beaomont Road PO.-B:>A 155':1. Karachi 75530. PaktStar

Tet· .. 922135650007 ra ,: .. 922135681965

( c) in our opinion and to the best of our Information and according to the explanations given to us, the statement of financial position. profit and loss account, statement of comprehensive income, cash flow statement and statement of changes in equity, together with the notes forming part thereof conform with approved accounting standards as applicable in Pakistan, and give the information required by the Banking Companies Ordinance, 1962 ( L Vil of 1962), and the Companies Ordinance, 1984 (XLVll of 1984), in the manner so required and give a true and fair view of the stale of the Bank's affairs as at 31 December 2012 and its true balance of the loss, its comprehensive loss, its cash flows and changes in equity for the year then ended; and

(d) in our opinion no Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980).

L---P-~~ /}J. ~ ... v Chartered Accountants

Audit Engagement Partner: Arslan Khalid

Date: 29 March 2013

·Karachi

A mcmtie1 ff rm of E11m & ''ouno Glooal Um·ti.'d

1

INDUSTRIAL AND COMMERCIAL BANK OF CHINA LIMITED - PAKISTAN BRANCHES

STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31, 2012

201 2 2011 Note (Rupees in '000)

ASSETS

Cash and balances with treasury banks Balances wrth other banks Lendrngs to financial rnslrtutions Investments Advances Operating fixed assets Deferred tax assets Other assets

LIABILITIES

Bills payable Borrowings Deposits and other accounts Sub-ordinated loans Lrabihties against assets subject to finance lease Deferred tax liab1lftles Other liabilities

NET ASSETS

REPRESENTED BY:

Head Office - capi1al account Reserves Accumulated loss

Surplus on revalualton of assets

CONTINGENCIES AND COMMITMENTS

The annexed notes from 1 to 34 form an integral part of these financial statements.

( Chief Executive Officer

8 9 10 11 12 13

14

15 16 17

18

19

11.1

20

4.063,541 1,336,371 1,554,395

13.596,093 56,596

316,663

1,123,957 22 ,047,616

738 12,221 ,381

4,167,644

2,509,152 18,898,915

3,148,701

3,506,910

(364,645) 3,142,265

6,436

3,148.701

.:t. .,,,.,,

Manager Finance

3,279,813 64.398

782 .528 1,484,124

26.423 294,316

20,762 5.952,364

22,397

1,524 071

1,395,584 2,942,052

3.010,312

3,192.892

{184 ,338~

3,008.554

1,758

3,010,312

2


PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED 31DECEMBER2012

Mark-up I retum / interest earned Mark-up I return I interesl expensed

Net mark-up I interest

Provision against non-performing loans and advances Provision for diminution In the value of investments Bad debts written off directly

Net Mark-up I return I income after provisions

NON MARK-UP / INTEREST INCOME Fee, comm1ss1on and brokerage income Dividend income loss from dealing in foreign currencies Gain I (loss) on sate of securities Unrealised gain I (loss) on revaluation of investments classified as held-for-trading Other income

Total non-mark-up I interest income

NON MARK-UP / INTEREST EX PENSES Administrative expenses Other provisions I write-offs Other charges Total non·mark-up I interest expenses

Extra ordinary I unusual items LOSS BEFORE TAXATION

Taxation - Current - Prior years · Deferred

LOSS AFTER TAXATION

Loss per share - basic ~nd diluted

The annexed notes from 1 to 34 form an integral part of these financial statements .

Chief Executive Officer

23

24

25

201 2

142 141 ,495 230,492

(410,799)

(410,799) (180,307)

(180,307)

(180,307)

Manager Finance

For the period from August 18,

2011 to December 31 ,

2011

56,241 (46,347)

9.894

9,894

3,023

(2.429)

594 10,488

(194,826)

(194,826) (184,338)

(184,338)

(184,338)

3


STATEMENT OF COMPREHENSIVE INCOME


loss after taxation for the year/ period

Other comprehensive income

Total comprehensive loss for the year/ period


Chief Executive Officer Manager Finance


2011 to December 31,

2012 2011

(Rupees in '000)

(180,307) (184,338)

(1 80,307) (184,338)

4


CASH FLOW STATEMENT


Cash flows from operating activities Loss before taxation

Adjustments for non cash items Depreciation Amort1sat1on (Gain) / loss on sale of operating fixed assets Provision against non-performing loans and advances Provision against other assets - net

Increase in operating assets Advances Others assets

Increase an operating liabilities Bills payable Borrowings Deposits and other accounts Other liabilities

Income tax paid Net cash from operating activities

Cash flows from Investing activities Net investment in operating fixed assets Lending to financial institueions Net investment in available for sale securities Net cash used in investing activities

Cash flows from financing activities Remittance received from head office Exchange adjustment on revaluation of capital Net cash generated from financing activities

Increase an cash and cash equivalents Cash and cash equivalents at beginning of the year/ period

Cash and cash equivalents at end of the year/ period


Chief Executive Officer

Note

13

26

For the Year 2012


2011 to December 31,

2011 (Rupees in '000)

(180,307) (184 338)

36,871 8,253

36,871 8,253 (143,436) (176,085)

(30,173) (26,423) 1,103,195 (20,762

(1, 133,368) (47 185)

(21,659} 22,397 12,221,381

2,643,573 1,524,071 1,113,568 1,395.584

15,956,863 2,942,052 14,680,059 2,718.782

14,680,059 2,718,782

(59,218) (302,569) (777,197)

(12, 107,291) (1.482,366) (12, 943, 706) (1,784 935)

54,509 3,192,892 259,509 314,018 3,192,892

2,050,371 4,126.739 4, 126,739

6,177,110 4,126,739

Manager Finance

5


STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2012

Head Office Account

Capital Accumulated account loss

(Rupees In '000)

Received from head office during the period 2,986,166

Exchange adjustment on revaluation of capital 206,726

Total comprehensive income for the penod (184,338)

Balance as at December 31 , 2011 3,192,892 (184,338)

Received from head office during the year 54,509

Exchange adjustment on revaluahon of capital 259,509

Total comprehensive income ror the year (180.307)

Balance as at December 31. 2012 3,506,910 (364,645}

The annexed notes from 1 to 34 form an Integral part of these financial statements.

Total

2,986,166

206.726

(184.338)

3,008.554

54.509

259,509

(180.307)

3,142,265

Chief Executive Officer Manager Finance

6


NOTES TO Tl1£ FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012

1. STATUS AND NATURE OF BUSINESS

1.1 lndusttial and Commercial Bank of China Limited - Pakistan Branches (the Bank) has been established and commenced operabons In Pakistan with effect from August 18, 2011 The Bank is a brancn of Industrial and Commercial Bank of China Limited (Head Office) which is incorporated in the People's Republic of China

1.2 The Bank presenUy operates through two branches in Pakistan and is engaged In banking activities permissible under the Banking Companies Ordinance, 1962. The registered office of the Bank is located at Parsa Tower , P.E.C.H.S, Main Shahrah-e-Faisal, Karachi

1. 3 Credit rating assigned 10 the Head Office of tne Bank by Moody's Investor Services Inc are as follows Long Term Rating A 1 Short Term Issuer Level Rating P-1

2. BASIS OF PRESENTATION

These financial statements have been prepared In conformity with the format or financial statements prescribed by the SBP v1de BSD Circular No. 04, dated 17 February 2006.

3. STATEMENT OF COMPLIANCE

3.1 These financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan. Approved accounting standards comprise International Financial Reporting Standards (IFRS) Issued bY lhe International Accounting Standards Board (IASB) as are nollfled under the Companies Ordinance, 1984. provisions of and directives Issued under the Companies Ordinance, 1984, the Banking Companies Ordinance, 1962 and regulations I directives issued by the Securities and Exchange Commission of Pakistan (SECP) and SBP Wherever the requirements or the Companies Ordinance, 1984, the Banking Companies Ordinance, 1962 or regulations J directives issued by the SECP and the SBP differ with the requirements of IFRS, the requirements of the Companies Ordinance, 1984, the Banking Companies Ordinance, 1962 or the requirements or the said regulations I directives shall prevail

3.2 SBP vlde BSD Circular No 10, dated 26 August 2002 has deferred the applicability of International Accounting Standard (IAS) 39, "Financial Instruments Recognition and Measurement" and IAS 40, "Investment Property" for banking cornpan1es till further 1nstructlons. Further, according to the notification of SECP dated 28 April 2008, IFRS - 7 "Financlal Instruments Disclosures'' has not been made applicable for banks. Accordingly, the requirements of these standards have not been considered 1n the preparation of these financial statements.

4. BASIS OF MEASUREMENT

These financial statements have been prepared under the historical cost convention except for certain investments which are revalued as referred to in note 5 3 and 5.12 below.

5. SIGNIFICANT ACCOUNTING POLICIES

5.1 The accounting pol1c1es adopted m the preparation of these financial statements are consistent with those of the previous financial year except as described below·

New and amended standards and Interpretations

The Sank has adopted the following amended IFRS which became effective during the year:

IAS 12- Income Taxes - Recovery of Underlying Assets (Amendment)

The adophon of the above amendment die! not have any material effect on these financial statements

5.2 Repurchase I resale agreements

The Bank enters into transactions of repos and reverse repos al contracted rates ror a specified period of lime. These are recorded as under:

Sale under repurchase obligation

Securities sold with a simultaneous commitment to repurchase at a specified future date (repos) continue lo be recognised in the statement of financial position and are measured In accordance with accounting policies for investments. Amounts received under these agreements are recorded as repurchase agreement borrowings. The difference between sale and repurchase price Is amortised as expense over the term of lhe repo agreement

Purchase under resale obligation

Secunt1es purchased with a corresponding commitment to resell at a specified future date (reverse repos) are not recognised in the statement of financial position. Amounts paid under these arrangements are ineluded In reverse repurchase agreement landings The difference between purchase and resale price is accrued as income over the term or the reverse repo agreements.

7 INDUSTRIAL AND COMMERCIAL BANK OF CHINA LIMITED PAKISTAN BRANCHES

5.3 Investments

Investments are classified as follows:

Held for trading

These are investments acquired pnncipally for the purpose of generating profits from short-term Ouctualions in price or dealer ·s margin or are securities included m a portfolio 1n which a pattern of short·term trading exists

Held to maturity

These are investments wilh fixed or determinable payments and fixed maturities which the Bank has the intention and ability to hold till matunty.

Available for sale

These are investments which do not fall under the held for trading and held lo maturity categories

All purchases and sales of investments that require delivery within the time frame established by regulations or market convention are recognised at the trade date. Trade date is the date on which the Bank commits to purchase or sell lhe investments

Investments (other than held for trading) are initially measured at fair value plus transaction cost associated with the investment Investments classified as held for trading are initially measured at fair value and transaction costs are expensed in the profit and loss account

After initial recognition. quoted securities, other than those classified as held to maturity, are carried al market value Unquoted securities are valued at cost less Impairment in value, if any Held to maturity securities are carried al amortised cosl.

Surplus I (deficit) arising on revaluation of quoted securities which are classified as available for sale Investments 1s taken to a separate account which 1s shown m the statement of financial position below equity The surplus I (deficit) arising on these securities is taken to the profit and loss account when actually realised upon disposal or in case of impairment of securities The unrealised surplus I (deficit) arising on revaluation of quoted securities which are classified as held for trading 1s taken to the profit and loss account

Provision for diminution in the values of securities is made after considering impairment. if any, in their value and charged to profit and loss account Impairment is recognized when there 1s an objective evidence of significant and prolong decline in the value of such securities. Provision for impairment against debt securities is made as per the aging criteria prescribed by the Prudential Regulations of the SBP and in case of unquoted equity securities on the basis of book value of investee's net assets.

Premium or discount on debt securities classified as available for sale and held to maturity is amortised using effective interest method and taken to the profit and loss account.

5.4 Advances

These are stated net of provisions for non-performing advances Provision for non-performing advances 1s determined in accordance with the requirements of the Prudential Regulations and is charged to the profit and loss account The Bank also maintains general provision in addition lo the requirements of the Prudential Regulations on the basis of the management's risk assessment. Advances are written off when there are no realistic prospects of recovery

5.5 Operating fixed assets - Tangible (owned)

Operating fixed assets are stated at cost less accumulated deprec1at1on and impairment, 1f any. Depreciation is charged to profit and loss account on straight line basis so as to charge the assets over their expected useful lives at the rates specified in note 13.2 The depreciation charge is calculated after taking into account residual value. 1f any. The residual values, useful lives and depreciation method are reviewed annually and adjusted, if appropriate. Depreciation Is charged on prorata basis 1 e .• full month charge in the month of purchase and no charge m the month of disposal

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when ii is probable that future economic benefits associated with the item will flow to the Bank and the cost of lhe item can be measured reliably The carrying amount of the replaced part is derecognised All other repairs and maintenance are charged to the income statement dunng the financial period in which they are incurred.

8 INDUSTRIAL AND COMMERCIAL BANK OF CHINA LIMITED

Gains and losses on disposal of fixed assets are included in income currently,

Capital work in progress

Capital work in progress 1s stated at cost less impairment. if any.

lmpalnnent

PAKISTAN BRANCHES

The carrying values of fixed assets are reviewed for impairment when events or changes 1n circumstances indicate that the carrying values may not be recoverable If any such indication exists and where the carrying values exceed the estlmated recoverable amounts, the fixed assets are written down to their recoverable amounts. The resulting impairment loss is taken to profit and loss account.

5 6 Provisions against liabilities

These are recognised when the Bank has a legal or constructive obligation as a result of past events. it is probable that an outflow of resources wllf be required to settle the obhgalion and a reliable estimate of the amount can be made. Provisions are reviewed at each reporting dale and are adjusted lo reflect the current best estimate

5. 7 Provisions against off-balance sheet obligations

The Bank, in the ordinary course of business issues fetters of credit, acceptances, guarantees. bid bonds, performance bonds etc The commission against such contracts is recognised m the profit and loss account under "fees. commission and brokerage income" over the period of contracts. The Bank's liability under such contracts is measured at the higher of the amount representing unearned commission income at the reporting date and the best estimate of the amount expected to settle any financial obligation arising under such contracts.

5.8 Revenue recognition

Mark-up I interest I return on advances and investments 1s recognised on accrual basis, except in case of advances classified under the Prudential Regulations on which mark-up is recogrnsed on receipt basis Markup I mteresl I return on rescheduled I restructured loans and advances and Investments 1s recognised as permitted by the regulations of Sl3P.

Gain or loss on sale of investments are recognised in profit and loss account in the year in which they arise.

Fee, comm1ss1on and brokerage income are recognised as services are performed.

5.9 Taxation

Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit and loss account except to the extent that 1t relates ro the Items recognised directly in equity or surplus on revaluation of assets, in which case it 1s recognised in equity or surplus on revaluation of assets

Current

Provision for current tax 1s based on the taxable income for the year, using tax rates enacted or substantively enacted al the statement of financial position date and any ad1ustments to the tax payable in respect of previous years. Current tax assets and liabilihes are measured at the amount expected to be recovered from or paid to taxation authorities

Deferred

Deferred Income tax 1s provided on all temporary differences at the statement of financial position date between the tax bases of assets and liabihties and their carrying amounts for financial reporting purposes .

Deferred income lax assets are recognised for all deductible temporary differences and unused lax losses. lo the extent that 1t is probable that taxable profits will be available against which the deductible temporary differences and unused tax losses can be utilised.

Deferred tax liabilibes are recognised for all taxable temporary differences except. In respect of taxable temporary differences associated with investment in in foreign operations, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future

The carrying amount of deferred income tax assets are reviewed al each statement of financial position date and reduced to the extent that 1t ls no longer probable that sufficient taxable profit or taxable temporary differences will be available to allow all or part of the deferred Income tax asset to be utilised

Deferred income tax assets and liabil1lles are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability 1s settled based on tax rates (and tax laws) that have been enacted or substantively enacted at the statement of financial position date.


5.10 Currency translation

Functional and presentation currency

These financial statements are presented m Pak Rupees which is the Bank's functional currency and presentation currency

Transactions and balances In foreign currencies

Foreign currency transactions are translated into Pak Rupees at the exchange rates prevailing on the date or transaction. Monetary assets and liabilities in foreign currencies are translated into Pak Rupees at the exchange rates prevailing al the reporting date. Non-monetary Items that are measured tn terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions Non-monetary items measured at fair value in a foreign currency are translated using exchange rates at the date when the fair value was determined. Exchange garns or losses are included in income currently.

Commitments

Commilments for outstanding forward foreign exchange contracts are translated at forward rates applicable to their respective maturities

5.11 Financial instruments

Financial assets and financial habihties are recognised at the tsme when the Bank becomes a party to the contractual provision of the instrument. Financial assets are de-recognised when the contractual right to future cash ftows from the asset expires or is transferred along with the risk and reward of ownership of the asset. Fmancial llab11lttes are de-recognised when obligation is discharged, cancelled or expired. Any gain or loss on de-recognition of the financial asset and liability is recognised m the profit and loss account of the current period.

5.12 Derivative financial instruments

Denvatrve financial instruments are 1mtlally recognised at their fair value on the date on which the derivative contract Is entered rnto and are subsequently remeasured at fair value All derivative financial instruments are carried as asset when fair value is positive and liabilities when fair value is negative Any change in the value of derivative financial instruments is taken to the profit and loss account

5.13 Off-setting

Financial assets and financial lrab1lities are only off-set and the net amount 1s reported in the financial statements when there is a legally enforceable right to set ·off the recognised amount and the Bank intends either to settle on a net basis, or to realise the assets and to settle the liab1llties simultaneously Income and expense items of such assets and liabilities are also off-set and the net amount Is reported In the financial statements.

5.14 Segment reporting

A segment is a distinguishable component of the Bank that is engaged in providmg products and services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risk and rewards that are different from those of other segments. The segment reporting format has been determined and prepared in conformity with the format of financial statements and guidelines, prescribed by SBP vide BSD Circular No.04 ,dated 17 February 2006 The Bank's primary format of reporting is based on business segments

5.15.1 Business segments

Retail banking

II consists of retail lending, deposits and banking services to private individuals and small businesses. The retail banking activities include provision of banking and other financial services, such as current and savings accounts, credit cards consumer banking products etc to ind1v1dual customers small merchants and Small and Medium Size Entities (SMEs).

Commercial banking

Commercial bankrng represents provision of banking services includmg treasury and international trade related acttvrttes to large corporate customers. mullinatlonal companies, government and semi government departments and 1nstltutlons and SMEs treated as corporate under the Prudential Regulations

10 INDUSTRIAL AHD COMMERCIAL BANK OF CHINA LIMITED PAKISTAN BR.A14CHES

5.16 Cash and cash equivalents

Cash and cash equivalents as referred to m the cash now statement comprises cash and balances with treasury banks balances with other banks and lendmgs to financial institutions having matunty of less than three months less overdrawn nostros accounts (1f any) .

8. ACCOUNTING JUDGMENTS AND ESTIMATES

The preparation of nnancial statements requires management to make Judgments. estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities. income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the result of which forms the basis of making judgment about carrying values of assets and habilities that are not readily apparent from other sources Actual results may differ from these estimates . The estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting estimates are recognised in the period in which the estimate is revised 1f the revision affects only that period, or 1n period of revision and future periods if the revision affects both current and future periods The estimates and judgments that have a significant effect on the financial statements are in respect of the following:

Classification of investments and provision for diminution in the value of investments Provision against non-performing advances Useful lives of assets and methods of depreciation

Note

5.3 & 11 5.4 & 12 5 5 & 13

7. STANDARDS, INTERPRETATIONS AND AMENDMENTS TO APPROVED ACCOUNTING STANDARDS THAT ARE NOT YET EFFECTIVE

The following revised standards, amendments and interpretations with respect to the approved accounting standards as applicable in Pakistan would be effective from the dates mentioned below against the respective standard or interpretation

Standard, Interpretation or amendment

IAS 1 - Presentation of financial Statements - Presentation of Items of comprehensive Income

IAS 32 - Offsetting Financial Assets and Financial liabililtes - (Amendment)

IFRIC 20 - Stripping Costs m the Production Phase of a Surface Mine

IAS 19- Employee Benefits -(Amendment)

Effective date (accounting periods beginning

on or after)

01 July 2012

01 January 201 4

01 January 2013

01 January 2013

The Bank expects that the adoplton of the above revisions and amendments of the standards will not materially affect the Bank's financtal statements 1n the period of initial application.

In addition to the above, the following new standards have been issued by IASB which are yet to be notified by SECP for the purpose of applicability In Pakistan

IFRS 9 - Financial Instruments Classification and Measurement IFRS 10- Consolidated Financial Statements IFRS 11 - Joint Arrangements IFRS 12 - Disclosure of Interests In Other Entities IFRS 13 - Fair Value Measurement

IASB Effective date (annual periods beginning

on or after)

O 1 January 2015 01 January 2013 01 January 2013 01 January 2013 01 January 2013


8. CASH AND BALANCES WITH TREASURY BANKS

In hand . Local currency Foreign currency

With State Bank of Pakistan in Local currency current account Local US Dollar collecbon account

Foreign currency deposit account Cash reserve account Capital account

Note

8 .1

82

PAKISTAN BRANCHES

2012 2011 (Rupees in '000)

6,770 253 42,369 333 49,139 586

226,280 86,132 34,452 51

246,760 152 3,506,910 3.192,892 4,014,402 3,279.227

4,063,541 3,279,813

8.1 This represents statutory cash reserve maintained under Section 36 of the State Bank of Pakistan Act, 1956

8.2 This represents capital maintained with SBP 1n accordance with the requirements or Section 13 of the Banking Companies Ordinance , 1962

9. BALANCES WITH OTHER BANKS

In Pakistan Current accounts

Outside Pakistan Current accounts Saving accounts

9 1

379

23,834 1,312,158 1,336,371

2.507

61 891

64 398

9.1 This represents US Dollar amount held with the Head Office and carries interest at a rate of 0.14% per annum.

10. LENDINGS TO FINANCIAL INSTITUTIONS

In local currency - call money !endings 782.528 In Foreign currency - call money !endings 10.1 1,554,395

1,554,395 782.528

10.1 This represents unsecured landings to financial institUllons carrying mark-up rate ranging from 1.00% to 1 55% per annum end having maturity ranging between March 11, 2013 to June 12, 2013.

11. INVESTMENTS

11.1 Investments by type· Avallable·for-sale securities

Marl

12. ADVANCES

Loans, cash credits, running fi nances. etc. In Pak1slan OulSlde Pakistan

Bills

13 INDUSTRIAJ. AND COMMERCIA.L BANK Of CHINA LIMITED

16 2 Details of borrowings

Secured Repurchase agreement borrowings

Unsecured Interbank call money borrowing

16.3 These carry annual rnark-up rate of 7 .00 - 11 .90%.

Note

16.3

16 4

PAKISTAN BRANCHES

2012 2011 (Rupees In '000)

569,726

11,651 ,655 12,221,381

16.4 These carry annual mark-up rates ranging from O 15% - 0.30% on borrowings In USD, 0 75% - 5 75% on borrowings in CNY and 7 00% - 11 .90% on borrowings In Pl

14 INDUSTRIAL ANO COMMERCIAL BANK OF CHINA LIMITED

22. MARK-UP I RETURN / INTEREST EXPENSED

Deposits Other short term borrowings Deposits

23. ADMINISTRATIVE EXPENSES

Salanes, allowances, ete. Rent. taices. insurance electricity, etc. Legal and professional charges Communications Stationery and printing Advertisement and publicity Depreciation Travelling and entertainment Audit fees Others

24. TAXATION

Noto

13.2

PAKISTAN BRANCHES

2012


2011 to December 31 ,

2011 (Rupees in '000)

650,054 32,750

682,804

271 ;268 48,171

354 17,106

779 5,391

36,871 17,320

590 12,949

410 799

46,347

46 347

129,864 28.435

3,113 10,641

3.135 184

8,253 5.529

5,672 194,826

24.1 As the Bank has a tax loss for the year ended December 31 , 2012, therefore, no provision for taxation has been made in these financial statements

24.2 The Bank has carried forward tax losses of Rs. 401 million. The unrecognised deferred tax asset on such losses amounts to Rs 140 milhon

25. EARNING I LOSS PER SHARE

The Bank operates as a branch of a foreign entity and does not have a share capital. Hence, no figures of basic and dtluted eaming loss per share have been reported in these financial statements

26. CASH ANO CASH EQUIVALENTS

Cash and balances with treasury banks Balances with other banks Lendings to financial institutions

27. STAFF STRENGTH

Permanent

28. COMPENSATION OF CHIEF EXECUTIVE AND EXECUTIVES

Managerial remuneration

Number of persons

Managerial remunerahon

Number of persons

8 9

2012 2011 (Rupees In '000)

4,063,541 1,336,371

777,198 6,177,110

(Number)

32

3 279.813 64,398

782,528 4,126,739

28

Chief Executive Executives

1

2012 (Rupees in '000)

27,926

(Number)

191 642

19

Chief Executive Executives For the period from August 18, 2011

to December 31, 2011 (Rupees in '000)

====1::!5 =00=1= 83.692

(Number)

1 18

15 INDUSTRIAL AND COMMERCIAL BANK OF CHI NA LIMITED PAKISTAN BRANCHES

28.1 The chief executive and certain executives have been provided with free use of Bank's rented and maintained cars in accordance with the terms of their employment and are also entitled to Bank's rented and maintained accommodallon and medical benefits In addition the chief executive and certain executives are also provided with drivers. security arrangements and payment of travel bills in accordance with their terms of employment.

29. FAIR VALUE OF FINANCIAL INSTRUMENTS

On-balance sheet financial instruments

2012 2012 2011 2011 Book value Fair value Book value Fair value

(Rupees In '000) --·- ----· (Rupees in '000) Assets Cash and balances with treasury banks 4,063,541 4,063,541 3,279,813 3,279,813 Balances with other banks 1,336,371 1,336,371 64,398 64,398 Lendlngs to financial institutions 1,554,395 1,554,395 782,528 782.528 Investments 13,596,093 13,596,093 1,484,124 1,484,124 Advances 56,596 56,596 26,423 26.423 Operating fixed assets 316,663 316,663 294,316 294,316 Other Assets 1, 123,957 1,123,957 20 762 20,762

22.047.616 22.047.616 5,952.364 5,952.364

Liabilities Bills payable 738 738 22,397 22,397 Borrowihgs 12,221,381 12,221,381 Deposits and other accounts 4,167,644 4,167,644 1,524,071 1,524,071 Other liabilities 2,509,152 2,509,152 1,395,584 1,395.584

18.898.915 18.898,915 2,942,052 2,942,052

Off-balance sheet financial instruments

Trade related commitments 16,143,672 16,143,672 1.081 945 1.081.945

Commitments in respect of forward

sale contracts 45,792,082 45,792,082 23,148 23,148


purchase contracts 44,594,260 44,594,260 22,796 22,796


swap sale contracts 147,023 147,023

Commitments in respect or forward

purchase contracts 10,576,400 10,576,400

Fair value is the amount for which an asset could be exchanged, or a liability settled between knowledgeable w11hng parties in an arm's length transaction Fair value of investments (Federal Govemment Securiltes) 1s based on PKRV rates (Reuters page).

The fair values of the financial assets and financial liabilities are not significantly different from their carrying values since assets and liabilities are either short term in nature or in the case of customer financing and deposits are frequently repriced

30. RELATED PARTY TRANSACTIONS


PAKISTAN BRANCHES

Transactions with related parties comprise of transactions in the nonnal course of the business with the Head Office, certain associates and key management personnel Transactions with related parties are earned out at agreed rates The transactions with employees of the Bank are carried out in accordance with the terms of their employment to the financlal statements.

Details of transactions with related parties and balances with them as at the year-end were as follows:

2012

Key Associates-Management (ICBC Head Office Total

Personnel branches)

(Rupees in '000)

Balance Sheet

Cash and balances - Nostro Accounts 1,312,158 23,834 1,335,992

Borrowings 11,651,655 11,651 ,655

Deposits 35,548 23, 131 58,679

Other Liabifites 97 1,350,575 1,350,672

Profit and Loss

Interest I Other Income 743 743

Interest I Other Expense 21s,n8 1,762 221,540

2011

Key Associates-Management (ICBC Head Office Total

Personnel branches) (Rupees in '000)

Balance Sheet

Cash and balances - Nostro Accounts 688 688

Borrowings

Deposits 61 ,891 61 ,891

Other Llabilites 1,304,393 1,304,393

Profit and Loss

Interest I Other Income 51 51

Interest I Other Expense 98,781 98 781

30.1 Key Management Personnel

Managerial remuneration (including allowances) Contribution to provident and benevolent fund Medical

Number of persons

17 INDU-STRIA.L AND COMMERCIAL BANK OF CHINA LIMITED PAKISTAN BRANCHES

201 2 2011 (Rupees In '000)

219.568 210

219,778

20

98,693 88

98,781

19

31. CAPITAL ASSESSMENT AND ADEQUACY - BASEL II SPECIFIC

31.1 Scope of application

The Bank operate as branches or a foreign entity in Pakistan to which BASEL II capital adequacy framework applies

31.2 Capital adequacy

According to BSD Circular No. 7 dated April 15, 2009 of SBP. the branches of foreign banks operating with 1 to 5 branches are required to raise their assigned capital (free or losses) to Rs 3 billion latest by December 31, 2013 subject to the condition that their head offices have paid-up capital (free of losses) amounting to at least USO 300 million and have a Capital Adequacy Ratio (CAR) of at least 8% or minimum prescnbed by their home regulators, whichever 1s higher Further the SBP requires thal banks in Pakistan should maintain regulatory capital for credit, market, and operational risks, the amount of which should at least be equal to 10% of their risk weighted assets

The Bank calculates capital requirement as per Basel II regulatory framework, using the following approaches

Credit nsk Market risk Operational risk

Standardised Approach Standardised Approach Baste Indicator Approach

Total regulatory capital should be at least 10 % of risk-weighted assets and the Bank's capital adequacy ratio is 65 41%.

31.3 Capital structure

The Bank's Tier I capital compnses assigned capital by Head Office which is deposited with SBP and accumulated loss.

The Bank's Tier II capital includes revaluation reserve only The Bank does not use any Tier Ill capital at present, which may include short-term subordinated debt solely for the purpose of meeting a portion of capital requ 1rement for market risk

Tier I Capllaf Head Office - capital account Accumulated loss Total Tier I Capital

Tier II Capital Revaluation reserve (upto 45%) Total Tier II Capital Eligible Tier /If Capital Total Eligible Regu latory Capital

2012 2011 ---- (Rupees in '000) -·---

3,506,910 (364,645)

3,1 42,265

2,896 2,896

3,145,161

3,192,892 (184.338)

3,008,554

1,758 1,758

3.010,312

18 INDUSTRIAL AND COMMERCIAL BANK Of CHINA LIMITED PAKISTAN BRANCHES

The nsk weighted assets to capital ratio, calculated in accordance with the SBP's guidelines on capital adequacy 1s as follows.

Capital Risk weighted Capital Risk weighted requirements assets requirements assets

2012 2012 2011 2011 -(Rupees In '000) --- --(Rupees In '000) --·

Credit risk Banks Other assets Ott balance

Market risk Interest rate risk

Operational risk Total

Capital adequacy ratio Total ehg1ble regulatory capital held (a) Total nsk weighted assets (b) Capital adequacy ratio [(a) I (b) x 100]

32. RISK MANAGEMENT

58,947 144,062 181,138 384,147

27,945

19.365 431.457

589,472 16,229 162,292 1,440,621 37.697 376,969 1,811.376 4.328 43.278 3,841,469 58.254 582,539

349,308 2,968 37, 103

2421057 5.817 72.709 4,432.834 67,039 692 351

3,145,161 3,010,312 4.432.834 692 351

70.95% 434 80%

The primary objective or the Risk Management System is to safeguard the Bank's capital, Its financial resources and profltablllty from various nsks The Bank's risk management policies are designed lo identify and analyze all nsks. to set appropriate nsk hm1ts and controls, to measure and monitor the same through rehable Management Information System

This secbon presents information about the Bank 's exposure to and its management and control of risks. in particular the primary nsks associated with its use of financial instruments Most of the functions spec1hed below have been performed at head office level

32.1 Credit risk

Credit Risk is the nsk of financial loss to the Bank 1f a customer or counterparty to a financial instrument fails to meet its contractual obligahons, and anses principally from the Bank's loan and advances to customers and other banks and investment secunties For nsk management reporting purposes. the Bank considers and consolidates all elements of credit risk exposure (such as individual obhgor default nsk. country and sector risk) The Head Office has delegated responsibility for the management of credit nsk to the credit committee which is responsible for the oversight of the Banks credit nsk 1n respect of.

• Formulating credit policies • Establtshmg the authorisation structure • Rev1ewmg and assessing credit nsk • Lim11tng concentratton of exposure to counterparties • Developing and maintaining the Bank's risk grading • Reviewing compliance of business umts • Providing advice guidance and speclahst skills to promote best pracltce 1n the management of credit risk

Credit exposures subject to simple approach

Given below are the Bank's outstanding (rated and unrated) m each risk bucket, deductions on account or credit risk mitigation, and net amount thereafter

Risk buckets

Amount outstanding/

credit equlvalent (rated and unrated)

2012

CRM

deduction Net amount -----(Rupees in '000) ----

20% 116101991 1.610.991

CRM: Credit Risk M1tigat1on

Amount outstanding I

credit equivalent

2011

(rated and CRM unrated} deduction ----(Rupees In '000)

808.951

Net amount

808.951


32.2 Segments by class of business

Advances (gross) (Rupees Percent in '000)

Agriculture I agri business lnd1v1duals Mining and Quarrying 42,606 75.28 Manufactunng Oil refinery I marketing Power Real estate I construction Services (Port activities) Transpot Telecommunication Commercial and Trade Architectural and engineering activities Others

Agriculture I agri business lnd1v1duals Mining and Quarrying Oil refinery I marketing Power Real estate I construction Services (Port activities) Telecommunication Others

32.3 Segment by sector

Public I government Private

Public I government Pnvate

13,990 24.72 56,596 100.00

Advances (gross) (Rupees Percent In '000)

22,795 8627

3,628 13.73 26.423 100.00

Advances (gross) (Rupees Percent in '000)

56,596 100.00 56,596 100.00

Advances (gross) (Rupees Percent In '000)

26,423 100 00 26.423 100 00

2012

Deposits (Rupees Percent in '000)

167,595 4.02 27,070 0.65 34,304 0.82

207,861 4.99 510,248 12.24 874,372 20.98 14,647 0.35

1,585,383 38.04 690,620 16.57

36,213 0.87 19,331 0.47

4,167,644 100.00

2011

Deposits (Rupees Percent in '000)

3.325 20,746

1.500,000

1,524,071

2012

Deposits

0.22 1.35

98 .42

100.00

(Rupees Percent In '000)

4,167,644 4,167,644

2011

Deposits

100.00 100.00

(Rupees Percent in '000)

1,524,071 1,524,071

100.00 100.00

PAKISTAN BRANCHES

Contingencies and commitments

(Rupees Percent In '000)

1,325,608 8.21 170,000 1.05 707,770 4.38

5,564,579 34.47

4,975,961 30.82

3,399,754 21 .07 16,143,672 100.00

Contingencies and commitments


197 880 18.29

54.619 505 14 393 1.33 3,064 0.28

60,108 5.56 751,881 69 49

1.081,945 100 00

Contingencies and Commitments


8,756,228 7,387.444

16.143,672

54.24 45.76

100.00

Contingencies and Commitments


443,341 638,604

1,081,945

40.98 59.02

100.00


32.4 Geographical segment analysis 2012

Contingencies Loss before Total assets Net assets and

taxation employed employed commitments

------··-· (Rupees m '000) ···-·-------

Pakistan (1 80,307) 3,279,813 3,1 48,701 16,143,672

2011 Contingencies

Loss before Total assets Net assets and taxation employed employed commitments

------(Rupees In '000) ----------

Pakistan (184,338) 5,952,364 3.010.312 1,081 ,945

32.5 Market risk

Market risk 1s the risk of loss arising from movements in market variables including observable variables such as Interest rates, exchange rates and equity indices. and others which may be only indirectly observable such as volatilities and correlations The Bank's pohcy is that all market risk taking activity 1s undertaken w1thm approved market risk limits. and that the Bank's standards I guiding principles are upheld at all times

Market Risk Management is an independent control function with clear segregation of duly and reporting line with the business-line. It means responsibility Is to ensure that the risk-taking units manage the Bank's market nsk exposure wrthin a robust market risk framework and within the Bank's risk appetrte The Bank standard systems are used to furnish senior trading and Markel Risk staff with risk exposures All trading aetiv1t1es and any business proposal that commit or may commit the Bank (legally or morally) to deliver nsk sensitive products require approval by independent authorised risk professionals or committees. prior to commitment.

32.6 Interest rate I yield risk

32.6.1 Interest rate risk 1s the risk of loss from adverse movements in interest rates Assets and Liab1hties Committee (ALCO) monitors and manages the interest rate nsk with the objective of limiting the potential adverse effects on the profitability of the Bank arising from fluctuation in 1he market interest rates and mismatching or gaps in the amount of financial assets and financial liabilities in different maturity time bands. The Bank's Interest rate exposure is calculated by categorizing Its interest sens1hve assets and liabilities into various time bands based on the earlier of their contractual repricing or maturity dates Interest rate risk exposures of the Bank are controlled through dealer limits , counter-party exposure limits and (when necessary) type-of-instrument limits.

Interest rate I yield risk In the banking book - Basel II Specific

The Bank holds financial assets and financial liab1hties with different maturities or repricing dates and linked to different benchmark rates, thus creating exposure to unexpected changes in the level of interest rates Interest rate risk 1n the banking book refers to the nsk associated with interest-bearing financial instruments that are not held in the trading book of the Bank.

Repricing gap analysis presents the Bank' s interest sensitive assets (ISA) and interest sensitive liabilities (ISL), categorized mto various time bands based on the earlier of their contractual repricing or maturity dates (or settlement dates for off-balance sheet instruments). Deposits with no fixed maturity dates (for e>Cample, saving deposits and treasurer s call deposits) are included 1n the lowest. one-month trme band, but these are not expected to be payable within a one-month period. The difference between ISA and ISL for each time band signifies the gap in that time band, and provides a workable framework for delerminlng the impact on net interest income

The Bank reviews the .repricing gap analysis periodically to monitor and manage interest rate risk in the banking book.

21 INDUSTRIAL A.ND COMMERCIAL BANK OF CHINA LIMITED PAKISTAN BRANCHES

32 6.2 Mi1m11ch of lntere1t rate aen•ltlve anets and lfabllllles

2012

Elf&Otl"• l;spoHd tO Yield/ lnlotHt rllk NCN1·1nterut

Y1eld I Ovor 1 O..r3 0-1 °""' 1 OvorZ 0¥Gr3 Ovorl banlll

6'11M>COIWl#l-bal\lo•

OllWIAlll

~

8'11 Pl'/A~I·

OepositJ Ind-~It

Elfe

31.6.3 Foreign Exchange R~k

22 INDUSTRJAL AHD COMMERCtAL BANK OF CHINA LIMITED PAKISTAN BRANCHES

The 88nk has a sysh!m '°'the measurement ona management ol roretgn exchange nSk. Pert ol lhls n~k menageme111 pLi!ll!!.i.t!.U 8'11s p;1yeblt

3, 1"8 701

Toll I

3.279.813 &4,398

782.528 ! 48-4 ,124

211.423 294.316

20.762 S.952,3114

UPI01 monlh

88.021 8'1,398

152.900 208;237

3.627 .

17,818

Over1 103

months

. . 829611)

1.275,887 . . .

533.010 t .905,506

2011 0vU3 Over I overt

106 month• lo 1 to2 months yHr veart

(Rupeu In '000)

. . . . . . . . . . . . 22.798 . . . . . . . . 22,796

Over2 to 3

yelllS

. . . . . . 2.944 2.llU

Over3 lo 5

veus

. .

. .

.

.

.

0epo$11• arid Oilier occount.s Omer 11a11t1it1"s IOI 1.s~;~~~ ~~:::~ 11.so2.2z4 II .___,1~3~9~5~58-4"'""'..._--"9~1~1~9.,_,l • 1~-----.L.----"----11'-----'---'

2 942.052 135,385 l.502.27 .. Nttasset• 3.010.312 398.525 "°3.2J2 22.796 2.944

Head Office · caP


32.5.6 Operational risk

The Bank's operational risk is related to possible losses which may be incurred as a result or failures occurring in the Bank' s day to day operations. such as breakdown in electronic and telecommunication, routines or other systems - add1tlonal factors being insufficient levels of professional skills or human errors In order to keep the Bank's operational risks to a minimum level. various suites of risk tools are used to manage operational risk using a common categonzat1on of nsk.

Bank's approach to operational risk is not designed to eliminate risk, rather, to contain 1t within the acceptable levels. as determined by senior management, and to ensure that the bank has sufficient Information to make Informed decisions about additional controls, adjustments to controls, or other nsk responses

Operational risk disclosures - Basel II Spe

ICBC @ INDUSTRIAL AND COMMERCIAL BANK OF CHINA LIMITED KARACHI BRANCH

Statement of internal control

ll is the responsibility of the management of lCBC Pakistan to establish, improve and effcct1vcl) implement internal controls and to c\laluatc the effecthenl!ss of the internal controls of the Branch. J11c ob.1cctivc for the imcrnal control S)Slcm of the Bank is to reasonabl) assure that the Bank's operations and management are in compliance ""ith rdcvant laws. safl.'l) of Bank assets. as well as the timcJiness, authenticity and completeness of its business record. financial information und other management information, lo enhance operation efficicnc) and results. and to faciliuue the Bank in achie\ ing its development strategy and opcratmg target.

The Bank has adopted mtcrnationall) accepted COSO Internal Control - Integrated Framework covering all sets of Jn tcrnnl Controls and ensuring compliance with SBP Guidelines. Since the Bank only rcccntl) commenced business it is in the process of Implementing SBP's Guidelines on ICFR.

nlc Internal Audit Department of the Branch conducted asscssm1:11ts on the eflccti\'eness of lhe bank-v .. idc internal control during the reporting period. and believed that during the reporting period, internal control system of the Bank was sound and effecli\cl) implemented. Keeping in \icw the risk exposure. internal controls are rcgularl) re\ iewcd and reported on their soundness.

For the )ear under re\ 1cw. it has been endeavored to folio\\ the Guidelines on Internal Controls and that it is an ongoing process for the identification, cvuluation and management of signi ficanl risks faced by the bank. The system is designed to manage, rather than eliminate the risk of failure in order to achie\c the business objectives. and can only pro\ tde reasonable assurance against material misstatement or loss ..

Kashif Abdur Rahman Head of Compliance

- l"' .:t.. 'JI I Wang Xin I lead of Finance

8TH FLOOR. PARSA TOWER, 31-1-A, SHAHRA-E-FAISAL, KARACHI - 75400 Tel: 021-3520-898813520-8900 Fax: 021-3520-8930 Website: www.icbc.com.pk

ICBC @ INDUSTRIAL AND COMMERCIAL BANK OF CHINA LIMITED KARACHJ BRANCH

R isk M anagement Framc\\ ork

ICBC has risk management guidelines to counter Credit Risi.., l\1arkel Risk and Operational Risk.

ICBC I lead Office is responsible for fonnulming high-level policies; independenl review or the large credit exposure. as well as those to banks; and Lhe portfolio management or risl.. concentrations. ll also reviews the el'licicnc} or credit approval process, a key clement of which is the Bank's universal facility grading system (GCMS). ICBC has dedicated standards. policies and procedures in place to control and monitor all such risks. TCBC has a wcll-establishcc.I credit risl. management process. which involves control of exposure. monitoring C\.po1;ure.

The management of market risk is controlled through risk limits. lhc Bank full) launched the construction of the Global Mark.et Risk Management Syskm (GMRT\l) to establish an integrated and unified data management platform and risk measurement management platform. and implemented the measurement and monitoring of interest rate risk, exchange rate risk.

In order to ensure bank liquidit}. JCBC has adopted the following measures: a. Strengthen the forecast of the asset and liabilities of the l3ank. und arrange for

relevant capital b. Enhance the communication "ith the trade banks and posithel) expand the

countcrparty scope e. Flexible pricing based on marketing research to attract more customer deposit

ICBC has established formal policies and manuals to ensure that the control cnvirnnmcnl is formal and documt!nted. Each polic) and manual has its owner and is approvl.!d and documented. ICBC promotes compliance culture. ad\ iscs management and line staff on regulations. assists in designing internal controls. monitors compliances,., ith laws and regulations, liaises with solicitors. communicates with the regulator. and prO\idcs training to slaIT. all of which helps raise staff a,,arencss and enhance compliance controls.

' \.u keen CIO l ~:, \\ang Xin Manager Finance

8TH FLOOR, PARSA TOWER 31-1-A, SHAHRA-E-FAISAL, KARACHI - 75400 Tel: 021 -3520-898813520-8900 Fax: 021-3520-8930 Website: www.icbc.com.pk

Documents

lllllllllllillllllillllllllllll'' ERNST YOUNG in•v.icbc.com.cn/userfiles/Resources/ICBC/haiwai/Karachi/...2012/12/31 · 3.2 SBP vlde BSD Circular No 10, dated 26 August 2002 has